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Should Your Goal Be To Pay Down A Multi Family Mortgage?

A multi family mortgage used to acquire, rehab or refinance should not be treated like the mortgage on your home. Let me explain.

If you are like most people, your objective when it comes to the mortgage on your home is to pay down the principal as soon as possible. The ultimate goal is to completely pay off the mortgage and no longer have that expense in your life.

On the other hand, your goal when it comes to a multi family mortgage on the apartment property you are acquiring or refinancing should be different. Your number one goal should be to get the monthly payments of the mortgage as low as possible. Why? Cash flow.

In the real estate investment business (like an business),


And mortgage payments are usually the single biggest killer of cash flow.

There are a few ways to lower your monthly multifamily mortgage payments.

First, and probably the most obvious, is to negotiate the lowest interest rate that you can.

Second, stretch out the amortization period as long as you can. (You should even consider stretching out the amortization period on a mortgage refinance. I am doing this on a refinance right now where I am pushing the amortization period out to 40 years from 15 and cutting my payments in half.)

Third, opt for an interest only loan. By not having to pay an principal each month, you will cut your payments significantly.

Now, before you go out and spend all that extra money each month on trips to Hawaii and a fancy sports car, HOLD ON! That "extra" money should be used to shore up your investment property emergency fund and/or saved up for your net investment.

Here's a quick example of what I am doing with a multi family mortgage refinance right now that will help illustrate my point.

I purchased an apartment complex 10 years ago and put a mortgage on it with a 10 year term, amortized over 25 years. The monthly payments for the past ten years have been $4,022 and there are now 15 years left on the original amortization schedule.

It is now due for refinancing.

What I plan on doing is this. Instead of staying with the same amortization schedule (with 15 years left) I am going to stretch that schedule back out to 40 years. Doing this I will (with the help of a slightly lower interest rate) cut my monthly payment to under $2,000, adding close to $25,000 per annum to my cash flow position.

"But you will NEVER pay off that multi family mortgage!" you say.

I say, so what. I am in this investment mainly for the cash flow. Besides I would rather have that money in my pocket for a rainy day. And if I really want to pay off that mortgage? I sell the investment property.

Keep these points in mind next time you are shopping for a multi family mortgage.

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